Please see the below article from Blackfinch Investment LTD providing a brief analysis of the key factors currently affecting global markets and economies. Received yesterday.
UK
Chancellor of the Exchequer, Jeremy Hunt, delivered a Spring Budget that received a muted market reaction. The key takeaway for households was that the main rate of Class 1 employee National Insurance Contributions would be reduced from 10% to 8% from 6th April. This was in addition to the 2p cut announced at the 2023 Autumn Statement 2023 which came into effect from 6th January.
Hunt also announced the introduction of a new Individual Savings Account (ISA) and British Savings Bonds. The UK ISA will give savers an extra £5,000 tax-free allowance on top of the existing £20,000 ISA allowance, to encourage investment into UK-focused assets.
The latest House Price Index from Halifax reported that UK house prices increased 0.4% in February, the fifth monthly rise in a row. Property prices were 1.7% higher on an annual basis, a slowdown from the 2.3% increase in the 12 months to January. An average UK home now costs £291,699, around £1,000 more than last month.
Housebuilding, which has been contracting in recent months, saw its biggest turnaround since January. The Purchasing Managers’ Index (PMI) jumped to 49.8, up from the previous month’s 44.2, reflecting the recent boost in sentiment that interest rate cuts are coming this year.
The S&P Global UK composite PMI, which tracks activity at services companies and manufacturers, increased from 52.9 in January to 53.0 in February. This indicated a pick-up in growth, after service sector companies reported a sustained increase in business activity, with the fastest rise in new work since May 2023.
North America
Recent US economic data boosted expectations that the Federal Reserve could begin cutting rates sooner than expected, with concern of a ‘hot’ jobs market beginning to dissipate. The US unemployment rate rose to 3.9%, the highest since January 2022, against expectations of staying at 3.7%. In terms of wage growth, average hourly earnings rose 0.1% in February from January, less than the 0.3% growth forecast by economists. Finally, the US Labor Department reported the US economy added 275k jobs in February, more than the expected 200k.
Europe
The European Central Bank (ECB) left its key interest rate at 4.50% after its latest policy meeting. Importantly, its latest staff projections show inflation forecasts has been revised down to an average 2.3% in 2024 and 2.0% in 2025. These forecasts has raised hopes that borrowing costs could come down sooner than thought.
Turkey’s consumer price index (CPI) increased by 67.07% annually in February, up from 64.9% in January, showing prices rising even faster than expected. On a monthly basis, prices rose by 4.53% in February. The Turkish central bank maintained interest rates at 45%, pausing a hiking cycle that had lifted borrowing costs by 3,650 basis points since May 2023. A year ago, rates were down at 8.5%, before a series of hikes to cool inflation.
The final Eurozone Gross Domestic Product (GDP) estimate confirmed the economy stagnated in Q4, barely improving on the 0.1% contraction seen in Q3. A historical data revision meant overall GDP growth came in at 0.4% last year, 0.1% lower than previously thought.
German factory orders plunged 11.3% month-on-month in January following an upwardly-revised 12% rise in December 2023. While the wild swings were attributed to volatility in big-ticket orders, core orders shrank 2.1% over the month. Core investment and consumer goods orders contracted over the month, as the impact of past rate hikes dampened consumer demand and the elevated uncertainty derailed investment.
Asia
According to the revised estimates, Japanese GDP grew 0.1% quarter-on-quarter in the fourth quarter of 2023, instead of a 0.1% dip in the initial estimate, reflecting an upgrade in business investment.
India became the fourth largest stock market in the world with a market capitalisation of INR 390trn (over USD 4.6trn) at the end of February, following five consecutive years of growth. The bull run reflects the combination of strong domestic and foreign buying.
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Alex Clare
12/03/2024